Sunday, April 29, 2012

In April 2011, several groups of parents, whose kids spent hundreds of dollars on in-app purchases while playing “free” games, filed a class action lawsuit against Apple. Until early 2011, once the password was entered, the iTunes allowed to make purchases on the account without requiring any additional verification. Parents claimed that they were unaware that their minor children could make in-app purchases without their knowledge in the fifteen minutes after the parents logged into their iTunes accounts. In the complaint, the parents claimed that every time their minor children made an in-app purchase, they entered into a contract with Apple, which was invalid because they were minors. Additionally, parents alleged that Apple engages in unlawful, unfair, fraudulent and/or deceptive business acts and practices by advertising, marketing, and promoting apps as free or at a nominal cost with the intent to lure minors to purchase game currency. On March 31, 2012, the U.S. District Judge from the Northern District of California, Edward Davila, considered Apple’s motion to dismiss the complaint. The Judge refused to dismiss four out of the five counts against Apple, allowing the case to proceed. The decision (although redacted) can be found here: http://www.scribd.com/doc/89229360/Apple-Bait-App-Case-Ruling-Copy.

Recently, Apple addressed the problem by adding a second layer of password protection. Also, users can now shut down the ability to make in-app purchases entirely.

Is Apple to blame for what happened? Yes, to some extent. Apple needs to require more detailed and prominent disclosures by the developers about the in-app purchases in the games. Parents are also to blame to some extent. They should not leave their kids alone with iPhones or iPads for extended periods of time. Both parties just need to supervise better. But there is another party involved in this situation that has not been named in the complaint, - the developers who failed to clearly communicate that their free games had in-app purchases. The developers should explain whether their games can be played effectively in the free mode, how many in-app purchases exist, and how much they cost. This is especially relevant in light of the rising concern over the addictiveness of some of the “freemium” games targeting children.

This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

Friday, April 13, 2012

On April 8, 2012, President Obama signed the Jumpstart Our Business Startups Act into law. The Act introduces major changes to the securities law of this country, comparable to those introduced by the Sarbanes-Oxley Act of 2002. Click here for the full text of the law: http://www.govtrack.us/congress/bills/112/hr3606/text

In particular, the JOBS Act makes the following changes:

1. IPO Process. The JOBS Act significantly relaxes the IPO process for the Emerging Growth Companies (EGCs, defined as companies with less than $1 billion in annual gross revenues) as well as reduces many restrictions for the EGCs that typically apply to securities offerings by public companies.

2. Periodic Reporting. The JOBS Act also relaxes the periodic reporting requirements for the EGCs. These changes are effective immediately.

3. Ban on General Solicitation and Advertising. The Act lifts the ban on general solicitation and advertising in offerings conducted under Rule 506 of Regulation D and Rule 144A of the Securities Act of 1933, as long as all investors are either accredited investors (for Rule 506 offerings) or qualified institutional buyers (for Rule 144A offerings). The Securities and Exchange Commission (the SEC) has 90 days to modify these rules to include the changes made by the JOBS Act as well as to determine the verification methods that companies need to use to make sure that their investors are accredited or qualified institutional buyers. So, stay tuned.

4. The 500 Shareholder Rule. Effective immediately, the Act increases the shareholder threshold to 2,000 persons in total or 500 persons who do not qualify as accredited investors (not counting those shareholders who purchased securities in a crowdfunding transaction and employees). This allows companies to delay going public (the previous threshold was 500 persons).

5. Regulation A Offerings. The Act increases the cap on the exempt securities offerings conducted under Regulation A from $5 million to $50 million.

6. The New Crowdfunding Exemption. Finally, the long awaited crowdfunding exemption. This is the most ambiguous of all provisions of the Act, since much will depend on the SEC rules that the Commission has 270 days to issue. According to the law, the companies using this exemption will need to provide certain disclosures and file them with the SEC 21 days in advance of the sales; the securities issued will be restricted securities for one year; and the crowdfunding portals will be regulated as well. Importantly, the securities issued in a crowdfunding transaction will be exempt from state blue-sky registration requirements.

The JOBS Act is a significant development in the securities laws. While the first five major areas of the law outlined above are clear and understandable, the actual implementation of the sixth change, the crowdfunding exemption, is less clear, and will depend in large part on the much anticipated SEC regulation.

So, for start-ups, there are no immediate benefits. Once the SEC revises Rule 506 and other related Regulation D rules within the next 90 days, it will become easier for the start-ups to raise capital from accredited investors, as they now will be able to use general solicitation and advertising to do so. As far as the crowdfunding exemption is concerned, - 270 days is a long long time.

For a great synopsis of the JOBS Act, check this blog: http://www.nuwireinvestor.com/articles/jobs-act-becomes-law-again-59040.aspx.

All opinions expressed here are my own, and should not be construed as legal advice.

Wednesday, April 4, 2012

I personally find trademark law to be fascinating. Here is another post about trademarks that explains my fascination with this area of law. The Trademark Trial and Appeal Board of the USPTO recently issued an opinion about whether the name Crackberry is a fair use parody on the name Blackberry and can therefore be trademarked. Crackberry.com reviews and offers for sale Blackberry products and accessories. Back in 2007, its owner, Defining Presence Marketing Group, Inc., filed four trademark applications for the word Crackberry in different classes (25 – clothing; 35 – marketing services; 38 – telecommunications and 42 – computer services). The trademark registrations got opposed by Research in Motion Limited, the owner of the marks Blackberry. Defining Presence claimed that the word is a fair use parody on the name Blackberry, and should be allowed to proceed with registration. Finally, in February 2012, the Board issued its decision which agreed with the makers of Blackberry that the name Crackberry should be refused trademark registration.

The Board disagreed with the defendants’ argument that the word was a fair use parody because the Crackberry mark was being used for the same goods and services as Blackberry. A good example of fair use parody in trademark law is the “Chewy Vuitton” case (Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 507 F.3d 252, 84 USPQ2d 1969 (4th Cir. 2007)), in which the company Haute Diggity Dog chose to name their pet chew toys Chew Vuitton, as a joking reference to the luxury Louis Vuitton handbags. The Fourth Circuit Court of Appeals found that, given the rhyming marks, the trade dress, etc., the use of the mark on an entirely different line of products was permitted as “fair use” exception to the rule against dilution by blurring.

In this case, however, because of the substantial overlap in products of Defining Presence and Research in Motion, the Board found that there was a likelihood of customer confusion between the names, and a likelihood of dilution by blurring the distinctiveness of the famous Blackberry marks.

You can access the Board’s opinion on the USPTO website.

This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

About the Author

Arina Shulga is the founder of Shulga Law Firm, P.C. Arina Shulga is a corporate and securities attorney with significant experience in startup law, securities offerings and SEC reporting obligations, cross-border transactions, corporate governance, private and public company representation, periodic reporting filings for public companies, business entity formation, licensing, contracts and employment-related agreements. She is experienced with advising small to mid-sized companies on formation, contract review and negotiation, private placement of securities, intellectual property matters and internal governance issues. Check out her LinkedIn profile.

You can contact Arina at (646) 481-8001, by emailing her at arina@shulgalaw.com or by visiting Shulga Law Firm's website.